This 24% devaluation in one year has been amongst the steepest declines among the Asian currencies. During last 3 months, Rupee has slipped by over 10%. Experts expect this volatility may continue for foreseeable future. Ajai Chowdhry Chairman, Department of IT's Taskforce that suggests measures to stimulate the growth of IT, ITES and Electronics Hardware manufacturing industry in India and Founder and Chairman, HCL was specially invited to share the difficulties Indian IT companies are facing.

He highlighted the concrete steps that industry and Govt. should take collectively to counter the forex volatility challenge. Mr Chowdhry said "This is an unprecedented situation arisen due to the hardening of the dollar. Many critical sectors are getting adversely affected. If not corrected immediately, suppliers will shy away causing delays in the procurement process which might impact all major economic activities including Industrial Production.

While the industry wants to go all out and support the government in this time of crisis, it is unable to do so because there is no protection against the volatility of foreign exchange. Government must incorporate exchange rate variation formula in all IT hardware procurement contracts or else industry particularly domestic manufacturing will begin to crumble.

He assured that the inclusion of the ERV clause will in no way inhibit the growth of the domestic IT Hardware Industry. Further, once the rupee turns around and appreciates against the USD, the industry will give the benefit back to the government, as it has done in the past".

Sabyasachi Patra Executive Director MAIT, on behalf of Indian IT industry, urged Ministry of Finance, DGS&D, Ministry of Commerce and Industry, Ministry of Communications and IT, and RBI to provide immediate interim relief to support in this time of crisis.

He specified "The Public Procurement Policy should definitely include the ERV clause. This will ensure that all government procurement secures interests of the government and the suppliers. Exchange rate is revised by Indian customs every month to collect duties at current rates. The same principle should be exercised for procurement too."

Speaking to the media S. Rajendran, Chief Marketing Officer, Acer India said, "The impact of Rupee devaluation on the IT industry has been very severe. Hence it is imperative that the pricing be indexed to reflect the reality. There are numerous large long-lead Government projects, which currently are facing execution challenges since price retention is both impractical and unsustainable for an industry which already operates on wafer-thin margins."

MAIT made the following 4 recommendations to the Government:

1. Implement the Exchange Rate Variation (ERV) clause as mentioned in the 'Manual on Policies and Procedures for purchase of Goods' released by the Department of Expenditure, Ministry of Finance. In fact, the purchase organisation should quote an appropriate exchange rate on the date of tender release so that the vendors can apply accordingly. This should be applicable for long term and short term contracts.

2. For the tenders that have been awarded and are in implementation stage, give an option to the vendors to ask for inclusion of this clause on ERV. To begin with, all DGS&D rate contracts should be revised with that clause. This should then be followed for other tenders and state Government nodal agency contracts etc.

3. To mitigate some of the impact of component price escalation (e.g. in hard disk) and impact of exchange rate volatility, import of raw materials should be exempted from CVD and SAD for a period of next 4 months (and some period thereafter should the situation persist). This will also help domestic manufacturing which has been hit harder by these supply chain disruption than the international companies with larger procurement clout to ride the current situation."

4. Extend the 35% abatement concession to all IT hardware devices particularly laptops, printers, scanners which are given just 20% abatement. This can be done immediately through a notification of CBEC as was recently done to rationalize flat panel monitors and Multifunctional devices.